By Robert Chang, Esq
A common way of avoiding probate that people use is the transfer of real estate to a family member or trusted friend. This is a very risky maneuver and should be avoided. Although you may save some money in the short term, the long term risks are great and need to be considered.
When a transfer is made in this way, it is regarded by the Internal Revenue Service as a tax and there will be a corresponding percentage of the transfer due as taxes unless the property is worth less than $14,000.
Next, one has to remember that debts and liabilities of the new owner subject the property to attachment. That means if you transfer the property to your son and he gets sued for getting in a car accident, the real estate that his name is on can be used to satisfy the remainder of what the automobile insurance does not cover. Furthermore, if he were to file bankruptcy, then that would become party of the bankruptcy estate and would potentially be subject to sale by the bankruptcy trustee. If your son gets dissolution, California law may subject the property to division between your son and his wife.
Trust can also be an issue – over the course of years, our relationships with people change. Although the person you are giving the property to now may be someone you trust, that may not be the case ten years from now. Once you transfer the property, you cannot make the other person transfer it back unless they choose to. Having one child on the property gives that child control over that property and they can use the property without your knowledge. For example, one can open an equity line on the property and essentially borrow money from the equity on the real estate. Finally, there is the issue of estate planning – upon your death, whoever you transfer the property to gets to decide what happens to the property – even if that decision goes against the express provisions in your will. Siblings can become estranged and develop resentments towards one another, and this may play a role in your estate planning that you did not intend.
The best way is to create and maintain an estate plan that spells out what you wish to have done. Having a loved one manage your property as a trustee creates a much more balanced relationship when compared to making them the owner, creates more peace of mind, and may save you more money in the long run.
Contact DP LEGAL SOLUTIONS for a comprehensive Living Trust Package or a Will Package to safeguard your family. Call us at 510.346.5686 to make an appointment or you can easily make appointment online HERE for convenience.